Shenwan Hongyuan Group Co., Ltd. has released a research note stating that the period of positive earnings surprises for the insurance sector has concluded, with market focus shifting from interim results back to third-quarter business performance. Due to the high base effect and the impact of the new bancassurance "compliance integration" rules, year-on-year performance on both the asset and liability sides may face temporary pressure. This has enhanced the relative appeal of some previously oversold stocks, while others, as constituents of the CSI 300 index, remain significantly under-allocated. Should market sentiment shift or liquidity concerns ease, these stocks could demonstrate strong upward momentum.

The key points from Shenwan Hongyuan's analysis are as follows:

Projected 70.6% YoY Growth in Net Profit for A-Listed Insurers in 1H26

A significant rebound in the equity market during the second quarter of 2026 is expected to drive robust investment performance. The combined net profit attributable to shareholders of A-share listed insurers for the first half of 2026 is forecast to reach 304.073 billion yuan, representing a year-on-year increase of 70.6%. This marks a substantial acceleration of 87.6 percentage points compared to the 1Q26 growth rate of -17.0%. Specifically, the combined net profit for 2Q26 is projected to surge 149.1% year-on-year to 234.190 billion yuan, indicating a strong performance. Examining individual companies, as of July 20, three listed insurers have already issued profit growth pre-announcements. China Life Insurance Co., Ltd., China Taiping Insurance Holdings Company Ltd., and New China Life Insurance Co., Ltd. expect their 1H26 net profits to grow by 215%-235%, 85%-95%, and 40%-60% year-on-year, respectively. The firm's estimates for 1H26 net profit growth are as follows: China Life Insurance Co., Ltd. (+217.3% YoY), New China Life Insurance Co., Ltd. (+51.5% YoY), PICC Group (+34.0% YoY), Sunshine Insurance Group Co., Ltd. (+33.4% YoY), Ping An Insurance (Group) Company of China, Ltd. (+22.9% YoY), and China Pacific Insurance (Group) Co., Ltd. (+16.9% YoY).

Steady NBV Growth Anticipated for Listed Insurers in 1H26

The transition towards participating policies has, to some extent, impacted the New Business Value Margin (NBVM) for certain insurers. Shenwan Hongyuan projects the following 1H26 New Business Value (NBV) year-on-year performances: China Life Insurance Co., Ltd. (+31.5% YoY), China Pacific Insurance (Group) Co., Ltd. (+15.7% YoY), Sunshine Insurance Group Co., Ltd. (+14.3% YoY), New China Life Insurance Co., Ltd. (+11.8% YoY), Ping An Insurance (Group) Company of China, Ltd. (+10.0% YoY), and PICC Life Insurance Company Limited (+9.3% YoY). Since 2026, following the adjustment in assumed interest rates, the relative advantages of participating insurance products have become more pronounced, with significantly improved acceptance among distribution channels and clients. The firm remains optimistic about the full-year benefits of product structure optimization and its positive role in reducing rigid liability costs.

Ongoing Benefits from Structural Optimization and Cost Reduction

The positive effects of optimizing structure and lowering costs continue to materialize, with the Combined Ratio (COR) for the first half of 2026 expected to maintain its year-on-year improvement trend. For the first five months of 2026, the original insurance premium income for property and casualty insurers reached 797.9 billion yuan, a year-on-year increase of 2.2%. Claim payments amounted to 432.4 billion yuan, up 1.6% year-on-year, indicating that the growth rate of claim payments was lower than that of premium income. Regarding natural disasters, data from the Ministry of Emergency Management shows that total direct economic losses from natural disasters nationwide in 1H26 were 42.14 billion yuan, a decrease of approximately 22.1% compared to 54.11 billion yuan in 1H25, suggesting overall lower catastrophe pressure in the first half of the year compared to the same period last year. Leading insurers continue to advance strategies focused on optimizing structure, controlling risks, and reducing costs. Coupled with the gradual liberalization of self-pricing coefficients for new energy vehicle insurance and the steady progress of comprehensive governance in non-auto insurance lines, the COR for listed insurers is anticipated to continue its year-on-year improvement in 1H26. At the company level, the projected 1H26 CORs are: PICC Property and Casualty Company Limited at 94.6% (down 0.2 percentage points YoY), Ping An Insurance (Group) Company of China, Ltd. at 95.1%, China Pacific Insurance (Group) Co., Ltd. at 95.7% (down 0.6 ppts YoY), and Sunshine Insurance Group Co., Ltd. at 97.9% (down 0.9 ppts YoY).

Equity Market Rebound and Lower Bond Yields Support Investment Returns

A structural rebound in the equity market during the second quarter of 2026 drove a recovery in investment returns, while declining long-term interest rates provided support for the fair value of bonds. In the first quarter of 2026, investment performance was pressured by temporary volatility in equity markets due to rising geopolitical risks. The second quarter saw a structural market rebound, with the CSI 300, CSI 800, CSI Dividend, STAR 50, and Hang Seng Index recording changes of +11.9%, +13.7%, -12.3%, +75.7%, and -7.7%, respectively, representing year-on-year changes of +10.6, +12.5, -12.4, +77.6, and -11.8 percentage points. By the end of 2025, major insurers had significantly increased their allocation to secondary market equities. With a higher proportion of equity assets measured at fair value through profit or loss (FVTPL), earnings have become more sensitive to equity market movements. Regarding bonds, as of June 30, the yield on 10-year government bonds was 1.73%, down 8.4 basis points from the end of March and 11.4 bps from the end of 2025, providing positive support for the fair value of FVTPL bonds.

Key Risks to Monitor

Potential risks include a continued decline in long-term interest rates, significant volatility in equity markets, frequent occurrence of major catastrophes, and policy impacts exceeding expectations.